Question

2. (TCO B) Adjusting Entries: Stephen King, D.D.S. opened a dental
practice on January 1, 2010. During the first month of operations
the following transactions occurred: Performed services for
patients who had dental plan insurance. At January 31, $1,000 of
such services was earned but not yet billed to the insurance
companies. Salaries were incurred totaling $650 but not paid at
month-end. Supplies totaling $600 were purchased on account.
Prepare the adjusting entries on January 31. Omit explanations. For
each journal entry write Dr. for debit and Cr. for credit. (Points
: 10)

3. (TCO B) Adjusting Entries: William Bryant is the new owner of
Ace Computer Services. At the end of August 2010, his first month
of ownership, Bryant is trying to prepare monthly financial
statements. At August 31, Bryant owed his employees $2,000 in wages
that will be paid on September 1. At the end of the month he had
not yet received the month’s utility bill. Based on past
experience, he estimated that the bill would be approximately $800.
A telephone bill in the amount of $317 covering August charges is
unpaid at August 31. You are to provide the missing adjusting
entries that must be made. For each journal entry write Dr. for
debit and Cr. for credit (Points : 10)

4. (TCO B) Adjusting entries: When the accounts of Constantine Inc.
are examined, the adjusting data listed below are uncovered on
December 31, the end of annual fiscal period. The prepaid insurance
account shows a debit of $9,000, representing the cost of a 2-year
fire insurance policy dated August 1 of the current year. On
November 1, Rental Revenue was credited for $4,000, representing
revenue from a sub-rental for a 3-month period beginning on that
date. Interest of $900 has accrued on notes payable. You are to
prepare the missing adjusting entry. For each journal entry write
Dr. for debit and Cr. for credit. (Points : 10)

5. (TCO B) Adjusting Entries: On April 1, 2010, Prince Company
assigns $500,000 of its Accounts Receivable to the Third National
Bank as collateral for a $300,000 loan due July 1, 2010. The
assignment agreement calls for Prince Company to continue to
collect the receivables. Third National Bank asses a finance charge
of 2% of the accounts receivable, and interest on the loan is 10%
(a realistic rate of interest for a note of this Type:). Prepare
the journal entry for Prince’s collection of $350,000 of the
accounts receivable during the period from April 1, 2010 through
June 30, 2010. You are to prepare the missing adjusting entry. For
each journal entry write Dr. for debit and Cr. for credit. (Points
: 10)

6. (TCO B) Adjusting Entries: Wizard Industries purchase $12,000 of
merchandise on February 1, 2010, subject to a trade discount of 105
and with credit terms of 3/15/, n/60. It returned $3,000 (gross
price before trade or cash discount) on February 4. The invoice was
paid on February 13. Assuming that Wizard uses the periodic method
for recoding merchandise transactions, record the purchase, return,
and payment using the gross method. For each journal entry write
Dr. for debit and Cr. for credit. (Points : 10)

7. (TCO B) Adjusting Entries: Shabbona Corporation operates a
retail computer store. To improve delivery services to customers,
the company purchased a new truck on April 1, 2010. The terms for
the acquisition of the truck are: it has a list price of $15,000
and is acquired for a cash payment of $13,900. Write the journal
entry to record the purchase of the truck. Write Dr. for debit and
Cr. for credit. (Points : 10)

8. (TCO D) The adjusted trial balance of Cavamanlis Co. as of
December 31, 2011 contains the following:

Account Titles

Dr

Cr

Cash

$18,972

Accounts Receivable

6,920

Prepaid Rent

4,280

Equipment

20,050

Accumulated Depreciation

$5,895

Notes Payable

5,700

Accounts Payable

4,472

Common Stock

20,000

Retained Earnings

15,310

Dividends

4,000

Service Revenue

12,590

Salaries Expense

6,840

Rent Expense

2,760

Depreciation Expense

145

Interest Expense

83

Interest Payable

83

$64,050

$64,050

Instructions
Prepare in good form a balance sheet for the year ended December
31, 2011. (Points : 15)

1. (TCO C) Flynn Design Agency was founded by Kevin Flynn in
January 2009. Presented below is the adjusted trial balance as of
December 31, 2010.
Flynn Design Agency
Adjusted Trial Balance
December 31, 2010

Account Titles

Dr

Cr

Cash

$10,000

Accounts Receivable

21,500

Art Supplies

5,000

Prepaid Insurance

2,500

Printing Equipment

60,000

Accumulated Depreciation

$35,000

Accounts Payable

8,000

Interest Payable

150

Notes Payable

5,000

Unearned Advertising Revenue

5,600

Salaries Payable

1,300

Common Stock

10,000

Retained Earnings

3,500

Advertising Revenue

58,500

Salaries Expense

12,300

Insurance Expense

850

Interest Expense

500

Depreciation Expense

7,000

Art Supplies Expense

3,400

Rent Expense

4,000

Total

$127,050

$127,050

Prepare a single-step income statement for the year ending December
31, 2010. (Points : 15)

2. (TCO C) Two accountants for the firm of Allen and Wright are
arguing about the merits of presenting an income statement in a
multiple-step versus a single-step format. The discussion involves
the following 2010 information related to Webster Company.

Administrative expense

Officers’ salaries

$5,900

Depreciation of equipment

3,960

Cost of Goods Sold

73,570

Rental revenue

17,230

Selling Expense

Transportation-out

2,690

Sales commission

7,980

Depreciation of equipment

6,480

Sales

116,500

Income tax

10,580

Interest expense

1,860

Prepare a single-step income statement for the year ended December
31, 2010. (Points : 20)

3. (TCO D) Bruno Company has seceded to expand its operations. The
bookkeeper recently completed the balance sheet presented below in
order to obtain additional funds for expansion.
Bruno Company
Balance Sheet
December 31, 2010

Current Assets

Cash

$280,000

Accounts Receivable (net)

340,000

Inventories at lower of average cost or market

500,000

Trading securities – at cost (fair value $120,000)

140,000

Property, plant and equipment

Building (net)

570,000

Office equipment (net)

160,000

Land held for future use

225,000

Intangible assets

Goodwill

100,000

Cash surrender value of life insurance

90,000

Prepaid expenses

12,000

Current liabilities

Accounts payable

175,000

Notes payable (due next year)

125,000

Pension obligation

122,000

Rent payable

49,000

Premium on bonds payable

53,000

Long-term liabilities

Bonds payable

500,000

Stockholders’ Equity

Common stock, $1.00 par, authorized

400,000 shares, issued 290,000

340,000

Additional paid-in capital

219,000

Retained earnings

?

Prepare a revised balance sheet given the available information.
Assume that the accumulated depreciation balance for the buildings
is $160,000 and for the office equipment, $105,000. The allowance
for doubtful accounts has a balance of $17,000. The pension
obligation is considered a long-term liability. (Points : 20)

5. (TCO F) At the end of 2010 Sorter Company has accounts
receivable of $900,000 and an allowance for doubtful accounts of
$40,000. On January 16, 2011, Sorter Company determined that its
receivable from Ordonez Company of $8,000 will not be collected,
and management authorized its write-off. What is the net realizable
value of Sorter Company’s accounts receivable after the write-off
of the Ordonez receivable? (Points : 20)

6. (TCO G) In your audit of Garza Company, you find that a physical
inventory on December 31, 2010, showed merchandise with a cost
$541,000 was on hand at that date. You also discover the following
items were all excluded from the inventory count.
•Merchandise of $71,000 which is held by Garza on consignment. The
consignee is the Bontemps Company.
•Merchandise costing $33,000 which was shipped by Garza f.o.b.
shipping point to a customer on December 31, 2010. The customer was
expected to receive the merchandise on January 6, 2011.
•Merchandise costing $46,000 which was shipped by Garza f.o.b.
destination to a customer on December 29, 2010. The customer was
schedule to receive the merchandise on January 2, 2011.
•Merchandise costing $73,000 shipped by a vendor f.o.b. shipping
point on December 30, 2010, and received b y Garza on January 4,
2011.
•Merchandise costing $51,000 shipped by a vendor f.o.b. destination
on December 31, 2010, and received b y Garza on January 5,
2011.
Based on the above information, calculate the amount that should
appear on Garza’s balance sheet at December 31, 2010, for
inventory. (Points : 20)

7. (TCO G) Werth Company asks you to review its December 31, 2010
inventory values and prepare the necessary adjustments to the
books. The following information is given to you.
•Werth uses the periodic method of recording inventory. A physical
count reveals $234,890 of inventory on hand at December 31,
2010.
•Included in inventory is merchandise sold to Bubby on December 30,
f.o.b. destination. This merchandise was shipped after it was
counted. The invoice was prepared and recorded as a sale on account
for $12,800 on December 31. The merchandise cost $7,350, and Bubby
received it on January 3.
•Not included in inventory is $8,540 of merchandise purchased from
Minsky Industries. This merchandise was received on December 31
after the inventory had been counted. The invoice was received and
recorded on December 30.
•Included in inventory was $10,438 of inventory held by Werth on
consignment from Jackel Industries.
•Excluded from inventory was a carton labeled “Please accept for
credit”. This carton contains merchandise costing $1,500 which had
been sold to a customer for $2,600. No entry had been made to the
books to reflect the return, but none of the returned merchandise
seemed damaged.
Determine the proper inventory balance for Werth Company at
December 31, 2010. (Points : 20)

8. (TCO H) Pollachek Co. purchased land as a factory site for
$450,000. The process of tearing down two old buildings on the site
and constructing the factory required 6 months. The company paid
$42,000 to tear down the old buildings and sold salvaged lumber and
brick for $6,300. Legal fees of $1,850 were paid for title
investigation and drawing the purchase contract. Pollachek paid
$2,200 to an engineering firm for a land survey, and $65,000 for
drawing the factory plans. The land survey had to be made before
definitive plans could be drawn. Title insurance on the property
cost $1,500, and a liability insurance premium paid during
construction was $900. The contractor’s charge for construction was
$2,740,000. The company paid the contractor in two installments:
$1,200,000 at the end of 3 months and $1,540,000 upon completion.
Interest costs of $170,000 were incurred to finance the
construction.
Determine the cost of the land and the cost of the building as they
should be recorded on the books of Pollachek Co. Assume that the
land survey was for the building. (Points : 30)

9. (TCO E) Maserati Corporation purchased a new machine for its
assembly process on August 1, 2010. The cost of this machine was
$150,000. The company estimated that the machine would have a
salvage value of $24,000 at the end of its service life. Its life
is estimated at 5 years and its working hours are estimated at
21,000 hours. Year-end is December 31. Compute the depreciation
expense using the Sum-of-the-years-digits method for 2011. (Points
: 30)